As the final estimates of the International Iron and Steel Institute (IISI) of last year's steel production will be out around the 19th of this month, a rough figure can be predicted on the basis of the reported 11 months' production, and the knowledge of the overall situation in the industry worldwide.

The year must have ended up with a production of about 840 million tonne of crude steel. It is up by about 6.7 per cent over the same in the previous year. If the November production figure is annualised, it is about 837 million tonne. If our estimate of about 65.5 million tonne stands correct for the month of December, the annualised rate is 786 million tonne. These figures are not seasonally adjusted. There are no reasons to believe that this month or a few following it will see any rush for increasing output, although there are discrete reports of some integrated plants trying to do so. This variety with lion's hearts will be few in number for sure.

Therefore, for the next three months ( including this ) the global steel production level can definitely be expected to be lower than the December level.

As earlier forecast, the global finished steel consumption may be in the region of 725 million tonne for this year ( October 2000 ). This is equivalent to crude steel of 830 million tonne. In the first quarter or may be even in the second, the global steel production will fall short of consumption. This would have certainly hastened the process of recovery in steel prices, but for the huge inventory that is being brought forward from the previous year.

These stocks are lying with steel makers, steel traders and end users. Although no accurate estimate is available of the stock and that the real size of it is anybody's guess, it is understood from discrete reports that size is fairly large. Apart from certain degree of uncertainty over the possible recovery path for steel prices, there are two factors that will hold steel production down. First, the sheer size of the current inventory. Second, many steel mills have already scheduled their production cuts and will now take some time, to get back to it even if the market turns around.

This is, however, not to rule out the actions of those mills currently desperate to sell and are capable of increasing production to the highest possible level at the first sight of some stability in the market. On the whole, steel production will drop more than proportionately in the first few months. This is what is expected to bring some stability in the market in the second quarter.

Whether the actual steel demand will be around the forecast figure of 725 million tonne of finished steel is the moot question and the answer for that will be known only after the year is over. The forecast was based on the assumption that the US economy would be slowing down and its steel consumption would drop to about 105 million tonne. Although the US economic slowdown is a reality now, one will have to wait to see its impact on steel demand.

There is a sharp drop in private consumption spending, although till the last report came in, construction continues to grow at reasonable pace. Construction accounts for nearly 28 per cent of the country's steel consumption. If the current downtrend in the economy gets intensified, steel consumption may drop even further. But, there is no strong reason at present to believe that this will happen. The EU steel consumption will certainly drop, but not below 130 million tonne, the figure we had estimated earlier. Whereas Japan's steel consumption may drop to about 70 million tonne, the recent developments indicate that the south east and east Asian steel recovery that was expected earlier will not come through. South Korea's steel consumption will perhaps remain, by all likelihood, at last year's level. The same is about Taiwan. The rest of Asia will also see stagnation apart from China and India where steel consumption is expected to grow by about 3.7 per cent and 6 per cent respectively.

All these will in fact bring the global finished steel consumption level to a shade below 720 million tonne, equivalent to 823 million tonne of crude steel. If the number drops to this level, there is more trouble for the steel makers around the world. Production cuts will be more protracted and price recovery more distant. But, the larger concern is that the segments of the steel industry that got hit the most, ie flat products, production continue to exceed demand, despite the fact that major cut-backs have been announced by major mills producing these items.

(The author is associated with Steel Exporters' Forum. Views expressed here are his own and not of the forum)